The Sure Road to Bankruptcy

It's been a couple of months since I wrote about Apple. It's been a problem for me, because I have an opinion on their strategy.

When I last wrote about them I got messages from Apple people practically begging me not to do it again.

I fall for this kind of stuff, but enough time has passed, there are more lessons to learn, it's time to write about Apple again.

When the parade has passed you by

Last year, like DEC in the early 80s, Apple had lost the leading position in its own market. Developers weren't following anymore, but users were still buying. Cash was coming in from hardware sales, but investment dollars weren't flowing into the market.

My belief: the best approach in such situtations is to reduce your own investment, no new initiatives are going to work when the developers aren't investing alongside you. Keep the users happy with hardware and small performance related software upgrades, and open your eyes and ears, open them wide, and try to catch wind of new developments that look promising.

Put down lots of small bets, not on your own people, you can't afford internal adventures on a big company payroll, it's too expensive, and a big company environment is the wrong place for them. Bet on small startups.

The key here is to spread the cash around, hoping that one of the new companies will provide you a chance to build a new skyscraper using their technology. You have no choice but to wait! The next direction can't come from within.

Meanwhile, the board wants new initiatives, new user experiences, new theories. You have to tell them no. Hunker down and wait. It's a good strategy, because there will always be something new to try out in the high tech business.

Some of the new ideas work, most don't. You want to be strong for the long-term. Every time the pendulum swings, you want to have the option to go for the ride.

The sure road to bankruptcy

The key mistake Apple made was betting exclusively on its own people for new technology directions. Huge money was spent on researchers who were so inwardly directed they couldn't even see the worldwide web when it happened.

Eventually Apple's board lost faith in these people, good move, but they brought in more people in to bet on. The problem with the Next folks was that they had already lost when Apple bought them. Even an accountant could see this. A few interviews with developers would have provided certainty. Next was a bad bet for Apple's shareholders.

It's a shame, $400 million could have capitalized 100 startup software companies. Winners, several of them would have emerged by now. They'd have an exciting product to sell, and many more on the way. But they were unwilling to open their eyes and look outside for new direction.

Amelio was the wrong choice to lead Apple. He had no grounding in the software business. He delayed in cutting losses in failed technologies. These were minor gaffes compared to the decision to bail out Next's creditors and assume their already bankrupt strategy. Apple shareholders are going to pay dearly for this decision. It's the sure road to bankruptcy for Apple.

I don't trust Jobs

Once you're dug in on a platform, it's so painful to switch. This is the lesson of computers. If you create using one, it really becomes personal. This is why Apple could spin in its spiral for a decade and still sell millions of computers a year.

In December 1996, Apple signaled the death of the Macintosh. By February the last doubt was gone. Apple did the unthinkable thing, they quit. "Rhapsody is what users want," they said. I didn't think so.

I tried to find some way it would make sense to produce a Rhapsody product. But I already had decided not to invest in software for Rhapsody back when it was NextStep. I had experience with Steve Jobs when he was in charge of Apple in the 80s. I took another look. Had anything changed? No. I saw a software developer prison being created. "Sign here," they said. I said no the first time and the second time too.

Amelio and Apple's board didn't ask developers what they thought of Steve Jobs before they spent their last money buying him out. If they had asked me, I would have said not to do it. I don't trust Jobs.

Does he think we're stupid?

Jobs says he's just an advisor to Gil. Does he think we're stupid? Amelio is confused, out of breath, over his head, gears stripped, without grounding. He has no power within Apple.

Jobs presents himself as the expert in the software business. He says Java Java Java but Java is not a product or an OS or a platform, it's just a brand. His message to remaining Mac developers: "Port!" and the developers say "OK!" But the ports are happening to Win32, not Rhapsody.

Jobs was the wrong person to choose to turn around Apple because that isn't what he wants. He wants to turn around Next. And he's willing to lose Apple to do it. Jobs calls the shots at Apple, Amelio has no power. Eventually I expect a bankruptcy and a shoulder shrug from Jobs as he leaves. "I tried," he'll say.

A creditors committee

The party is almost over, all the loans have been taken, all the cash has been spent. Sales of Rhapsody are $0. The Mac continues to sell, but in greatly reduced numbers. Distribution is walking away. They're losing the education market, the multimedia developer market, their mainstays.

A creditors committee will have a better chance of finding a profitable business at the core of Apple. The great adventures will be over, finally. There are still people who would pay a few thousand dollars for a faster bigger Mac. There's the core of the business.

It'll be a much smaller business than Apple was a few years ago, but there's got to be profit in there; at least enough money to pay off the creditors.

The old man and the skyscraper

On Monday, in The Ken Olson Question, I told the story of an old man and a bank. A skyscraper is being built around his house, but the man holds on, wanting to die in the house he raised his kids in.

It's a metaphor. Apple is the bank -- twenty years later. While their technology aged, they continued to pour money into a system that didn't work, hoping to recreate the magic, thru pure genius and financial power, the energy that that built the skyscraper so many years ago.

But they missed the point, it wasn't genius that created the skyscraper in the first place. The Apple II was the result of good engineering, somewhat, and good hype, somewhat; but it was mostly made of great timing. If they had started Apple two years earlier or later it wouldn't have worked. Same with the Mac. It needed the Apple II cash cow to have a chance. It also needed IBM to fail to understand how much memory people needed. Timing is everything.

Genius doesn't make your economics go boom. What does? Timing, luck, and changes in technological directions that are missed by your competitors. Once you become a big company, it's a struggle to look outside, but in the technology business you must, or you will miss the change when it comes.

Platforms die slowly

Last year Apple wasn't a leader, yet they played the game as if they were. People said the net is the computer and they were right. And the platform is the developers. When you're a platform vendor with few developers, you don't have much of a platform. But it takes a long time for platforms to die because it's so difficult for users to switch.

I've said it so many times, Apple's economics are totally out of whack. After all the losses, over all these quarters, could anyone doubt this? And nothing has changed. They're still playing adventure, spending huge amounts of money to get deeper into a platform proposition that doesn't work. Windows won't lay down and die. Microsoft will not miss the turn in the road.

Soon the bubble will burst, it can't go on forever.

Like the Okies in the thirties

We're going to Windows, not Rhapsody. It's so hard to switch. I want a safe place to build my little tree house. We've looked back several times, and wondered what was going on in our old home. But like the Okies in the thirties, there's no place for us there. So we look over the horizon and hope for the best!